(a) Explain the meaning of (i) absorption costing, (ii) marginal costing,

(iii) contribution.

(b) A firm which uses cost plus (full cost) pricing makes 100 each of a range of products each month. The unit costs of the whole range are shown at 'the top of the next page.

Market conditions have moved against the firm and competitors are charging the following prices for the whole range, beginning with J: £21;
£34; £38; £51; £40.
Show how the firm can still compete at the new prices, and earn itself an overall profit of £200 per month by producing K, L and M. Explain fully how this can be so.

(c) Why is the marginal costing approach not suitable for analysing longterm decisions?

Transcribed Image Text:

J K L M N Direct materials 10 12 13 16 19 Direct labour 8 9 10 13 13 Variable overhead 4 5 7 9 10 22 26 30 38 42 Fixed overhead 3 4 5 7 8 25 30 35 45 50 Profit (20%) 5 6 7 9 10 30 36 42 54 60